How New Mortgage Rules Could Hurt Middle Class House Buyers
In order to prevent another housing crisis, which caused the financial meltdown that rippled across not only this country, but the world at large, the federal government has begun instituting new rules that will tighten how banks are able to do business when it comes to providing mortgages to both new and existing home buyers. While these new regulations are designed to protect buyers and lenders alike, there is some concern that these new rules could actually hurt middle class families that are looking to purchase a home.
The flood of foreclosures that hit the market just five years ago was due in large part to the subprime loans which left individuals with mortgages that they could not afford. These foreclosed homes caused the properties around them to drop in value, which left many individuals with a home that they owed more money on than the house was actually worth. Slowly, the housing industry has begun to recover, but preventing another disaster is by no means an easy task.
New Mortgage Rules
One of the more interesting, and concerning, aspects of the Dodd-Frank Act is that, beginning January 1 of next year, banks will be prohibited from approving loans to individuals who have a deck to income ratio that is higher than 43%. This particular rule is often referred to as the "ability to pay" rule. In short, it is designed to ensure that individuals do not get a loan that is more expensive than what they can afford to repay. These tighter lending guidelines are likely to mean that many individuals will no longer qualify for a home loan beginning January 1.
In addition to making it difficult for the average middle-class family to qualify for a loan, there is also some concern that these ability to pay rules may have a negative effect on minorities or other groups, causing lenders to run afoul of fair lending laws.
Information for Borrowers
While there may be no way around the fact that many individuals are simply not going to qualify for a home loan is easily as they did just a few years ago, the good news is that borrowers should be able to have an easier time determining which loans best suit their needs in order to choose one that will not leave them in a difficult financial situation. Although these ability to pay rules are definitely stricter, the basics are still in place when it comes to what an individual needs to do in order to qualify for a loan the first place.
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